Crown Corporation

Crown corporations are wholly owned federal or provincial organizations structured like private or independent companies. Among them are important enterprises such as the Canadian Broadcasting Coporation, VIA Rail , Canada Post, and the Bank of Canada, as well as various provincial electric utilities. Crown corporations have greater freedom from direct political control than government departments and, as long as crown corporations have existed, there has been debate about their structure, accountability and role in the economy.

"Mixed" Economy

The first Canadian crown corporation, the Board of Works, was established in 1841 to construct a shipping canal system in the Province of Canada. By 2012 there were 49 crown corporations in operation across the country, created by governments to provide important services in a vast, sparsely populated nation—usually because the private sector was unable or unwilling to provide them, rather than because of a preference for public ownership per se.

Many of the most significant crown corporations created in the 20th Century were designed to meet transportation needs, including the Canadian National Railways and Air Canada (both of which have since been privatized), and the St. Lawrence Seaway Authority (now the St. Lawrence Seaway Management Corporation).

After the Second World War, a number of federal crown corporations also emerged as important providers of loans and financial services to farmers (Farm Credit Corporation), small businesses (Business Development Bank of Canada) and exporters (Export Development Corporation), interests whose needs were not always met by private financial institutions.

The federal government has at times owned and operated coal mines (Cape Breton Development Corporation) and also Petro-Canada, a major integrated oil and gas company that is now privatized.

In recent years, crown corporations have also been developed to meet emerging needs. In 2002, The Canadian Air Transport Security Authority (CATSA) was formed to provide passenger and baggage screening at airports as a direct response to the terrorist attacks of 11 September 2001.

Crown corporations are the essence of Canada's "mixed" economy—a combination of government versus privately-owned enterprise—creating a distinct difference between the industrial organization of Canada and the United States, where state-owned enterprises are less common.

Provincial Crown Corporations

In most provinces, crown corporations are responsible for generating and transmitting electricity (e.g. Hydro-Québec), for gaming and lotteries (e.g. Manitoba Lotteries Corporation), and for selling liquor (the Liquor Control Board of Ontario). Some provinces also own telephone companies (SaskTel), and some provinces have owned mining and manufacturing enterprises such as the Potash Corporation of Saskatchewan (now private) and the Sydney Steel Corporation of Nova Scotia (now defunct). In British Columbia, Saskatchewan, Manitoba and Québec, crown corporations have sold automobile insurance, while in Alberta, British Columbia and Ontario they have operated railways.

Government-owned companies have traditionally had special prominence in Québec and Saskatchewan. After the Co-operative Commonwealth Federation's landmark electoral victory in Saskatchewan in 1944, crown corporations were seen as an important way of building a more diversified economy. Since the early 1960s, successive Québec governments have also employed crown corporations to diversify the provincial economy, to preserve and create jobs, and to nurture francophone managers. Hydro-Québec a major example, but crown corporations were also established in Quebec's steel, oil and gas, forestry, and asbestos industries.

The Role of Crown Corporations

A central argument for crown corporations is that the commercial activities of government, to be performed successfully, must be shielded from constant government intervention and legislative oversight. So crown corporations enjoy greater administrative freedom than ordinary government departments. As government enterprises, however, their autonomy cannot be absolute and must be tempered by some public control over policy-making. The Canadian experience suggests that corporate autonomy, government control, and legislative oversight are often conflicting and difficult to reconcile.

Government influence over federal crown corporations developed piecemeal, but a key element was section VIII of the 1951 federal Financial Administration Act (FAA). It organized crown corporations into three schedules or types—departmental, agency, and proprietary—each of which performed different functions and had a different relationship with the state. Departmental corporations, such as the Economic Council of Canada, performed no obvious commercial functions and were treated the same as government departments. Agency corporations, such as Atomic Energy of Canada Limited, were accorded greater freedom while proprietary corporations—such as Air Canada (before it was privatized)—enjoyed even greater autonomy in financial matters..

The FAA's provisions required agency and proprietary corporations to submit annual capital budgets to the responsible minister, the minister of finance and the president of the Treasury Board. The budgets needed the approval of these three ministers, the Cabinet and ultimately Parliament. Agency corporations also submitted operating budgets for approval to the responsible minister and the president of the Treasury Board. Cabinet also controlled the appointments, remuneration and dismissal of crown corporations' boards of directors and senior officers. Theoretically, boards provided the key link between the government and corporate management, but their effectiveness was often been undermined by a lack of precise definitions of the powers, duties and responsibilities of boards, political patronage in the selection of board members and, finally, the federal government's unorthodox and controversial practice of appointing senior civil servants to the boards.

Controversy, Debate and Reform

The traditionally quiet environment surrounding federal crown corporations was shattered in the 1970s when a major debate emerged about their roles and effectiveness. At the heart of the debate was the view that the scope and economic importance of crown corporations had outdistanced Ottawa's capacity to control them, and that crown corporations had become too prominent in the economy.

To many observers, the FAA was antiquated and some felt that major crown corporations, particularly the CNR, had escaped political control. Successive auditors-general criticized the financial management of crown corporations, and controversy surrounded the activities of Atomic Energy of Canada Limited and Air Canada. Petro-Canada's rapid expansion, and Via Rail's chronic problems, fuelled the discontent. The role of crown corporations was also a problem in several provinces including British Columbia, Saskatchewan, Manitoba and Québec.

In 1984, Bill C-24 passed, replacing the FAA with a new legislative framework. Among other things, the law established new schedules or types of crown corporations, extended the Cabinet's ability to issue directives, and stressed the notion that crown corporations can neither establish nor dispose of subsidiaries without Cabinet approval. It also clarified the process of budgetary approval, and ensured that corporate plans be submitted to Cabinet for approval and to Parliament for discussion. These reforms, however, did not satisfy critics, who suggested that Bill C-24 generally codified existing procedures and policies, broke little new ground, and left major problems unsolved.

In 2003, an auditor-general investigation into a federal sponsorship program revealed financial management concerns at a number of crown corporations, including Canada Post, VIA and the Business Development Bank of Canada. A subsequent report by retired judge John Gomery—into serious questions of transparency and financial management involving government contracts and appointments under Liberal rule—led to major reforms at crown corporations and to the 2006 Federal Accountability Act.

Among the changes brought about by the Conservative government in 2006: the Act extended the list of crown corporations accountable under the Access to Information Act, brought changes to the appointment of board members and restricted the number of civil servants on boards, and split the Chief Executive Officer and Chair roles into two distinct positions.

Privatization

In the mid-1980s, following a widespread sell-off of public assets in the United Kingdom under British Prime Minister Margaret Thatcher, the government of Prime Minister Brian Mulroney appointed a minister of state for privatization, who oversaw the sale of iconic crown corporations including Petro-Canada and Air Canada, as well as de Havilland Aircraft Co. and Canadair. Between the mid-1980s and mid-1990s, a number of other key crown corporations were also privatized by Ottawa and the provinces alike, including CNR, the Alberta Liquor Control Board and Nova Scotia Power.

In 2013, Stephen Harper's Conservative government introduced measures in its budget bill giving it new powers over collective bargaining, salaries and working conditions at four crown corporations, including the CBC.